Can Allowances Be A Teaching Tool?

Why Consider An Allowance?

Children learn about receiving a fixed income and they can begin to make decisions about how to use it.

Children receiving allowances may learn to set financial goals.

Children experience and learn the results of poor money management.

When Is The Best Age To Start Giving An Allowance?

Many parents wonder this! The answer is that is really depends on the child. An allowance can be started as soon as a child grasps how money works (i.e., that we use money to buy the things we want and need.) Some experts say children as young as age 4 or 5 can be ready to learn how to use money and can be started on an allowance. Others say 6 or 7 may be a better age. Children with older siblings usually are ready for an allowance at an earlier age than only or first-born children.

Allowances and Chores

Many financial experts agree that it is important to keep the idea of an allowance separate from being paid for doing chores. Children have responsibilities within their families which they should fulfill without expecting to be paid for completing them. Paying children for chores also encourages the attitude that everything has a price and they should get paid for what they do. Chores are a part of belonging to a family.

To see how paying for chores can get out of hand, let’s suppose Maria makes her bed only four days out of seven. Do you pay her the usual weekly allowance? If her allowance depends upon chores being completed, someone has to keep track of what’s done and decide upon a pay scale. What if Maria decides one week she doesn’t need any money, so she doesn’t do any work? An allowance usually includes money to buy certain items as agreed to by the parent and the child.

Children Should Decide How They Use Their Allowance

Here are some suggestions for what children might be expected to purchase using their allowances at different ages:

6-9 years old: in addition to the above, movies, amusements, lunch at school, magazines, gifts for birthdays and holidays, contributions, club or activity dues, hobbies, special sports equipment, school expenses.

9-12 years old: in addition to the above, fees for activities such as swimming or skating, some school supplies or trips, some clothing, and upkeep of items like sports equipment.

13-18 years old: all of those mentioned previously plus money for dates, grooming, cosmetics, jewelry, school activities, travel and savings for college. The needs and wants of teenagers rapidly outgrow the family’s ability to pay for everything. So the opportunity for earning money outside the family becomes essential.

In addition to the needs of the child, the actual amount of an allowance should fit with the family’s financial situation. The lower the family’s income or the more people in the household, the smaller the amount of each child’s allowance compared to families with higher income and/or fewer family members.

How Much Should Be Paid As An Allowance?

Consider family income and financial commitments, the age and ability of the child to manage the money, what the child’s friends receive as an allowance, and the cost of items the allowance will cover. The allowance amount should be enough to cover specified items with a little extra for saving and some for fun spending. Yet it also needs to be small enough that it forces the child to make financial decisions. Develop a trial amount by keeping track of the child’s purchases for a month or two. Then track what happens with the allowance for a couple of months to see how it works. Change the amount of the allowance only when really necessary like when the family’s income drops or a child’s expenses go up. Build-in regular increases such as on birthdays or at the beginning of a school year. Decide the amount of the increase by checking with other parents or look online or in publications at the local library.

Tips

Check with the parents of a child’s friends. What amount do the friends get as an allowance? Giving him either much more or much less than what friends receive may create problems for him.

Sit down and discuss expectations with the child before an allowance is started. Establish what allowance is to pay for and any limitations on what can be bought. For example, what limits are there on the amount of candy they can buy? Will you say “no” to certain movies they buy or go see? If her bike tire needs replacing, will you help out or will she be expected to pay for the repair with her allowance?

Pay an allowance on the same day each week. The child should not have to remind or beg for an allowance to be paid. Paying at the beginning or middle of the week may help younger children learn to stretch their money until the next allowance is paid. Do not rescue a child when he runs out of money. He needs to learn there are consequences for not spending wisely. He might not get to go to the movies with friends if he’s spent all his money early in the week. If she asks for more money for what the parent thinks is a worthy cause, consider giving her a chance to earn it by doing one of those special jobs like cleaning out the attic.

Paying the allowance with various kinds of coins or bills may help younger children learn the value of each coin or bill. It also makes it easier to divide the allowance into spending, saving, and sharing amounts according to a previously-set money plan.

An allowance basically is money that would be spent on a child anyway, just given in a different form. Instead of paying for things at the time when he wants them, parents pay him an allowance and let him decide how to spend the money. The goal of an allowance is to teach children to distinguish between wants and needs and to prioritize and save — difficult lessons that will pay off throughout life.

How do you use allowances in your family? Let us know in the comments below or tweet us at @UNLExtensionTLC.

Leanne Manning, Extension Educator | The Learning Child

(This article was originally published as a NebGuide by Manning. It is re-published her with permission).

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